Wall Street Engineers Newest Frankenstein’s Monster For Housing
WEDNESDAY, JULY 31, 2013
Wall Street engineering is back in the housing market. Its newest product is one heck of a contraption, a synthetic structured security of the type that helped blow up the financial system back in 2008. It’s like those triple-A rated mortgage-backed securities that became toxic waste in your “money-market-equivalent” bond fund or elsewhere in your 401(k) or in the portfolio of a town in Norway – only worse.
To get that deal done, private-equity giant Blackstone Group is conniving with too-big-to-jail Deutsche Bank, which is already buried under an avalanche of legal problems, scandals, and write-offs in Germany.
Blackstone has been on the forefront in the housing market, gobbling up 32,000 single-family homes for $5.5 billion, helter-skelter, at foreclosure auctions on courthouse steps scattered around the country, hoping for capital appreciation and rental income. Deutsche Bank has been on the forefront funding this binge and leading the issuance of $3.6 billion in loans.
There were other players. American Homes 4 Rent bought 19,000 single-family homes, Colony American Homes nearly 18,000, Silber Bay Realty Trust 5,370, Waypoint Homes 4,620, American Residential Properties 2,530…. In total, private-equity firms, rental REITs, and hedge-funds have raised over $17 billion to buy over 100,000 vacant, foreclosed single-family homes since 2011 [my take on what is happening to their pretty sisters, mortgage REITs…. Mother Of All Bubbles Pops, Mess Ensues].
Countless smaller companies, mom-and-pop operations, and individual investors have jumped into the fray, buying out of foreclosure whatever they can get their hands on. Frenzied radio ads once again promise untold wealth in real estate. Flipping is in vogue again. All the insanity that had been flushed out of the system during the crash is back, but this time, big firms with access to the Fed’s free money are the prime players.